THE PHILIPPINES’ debt service burden on its external debt more than doubled as of end-May amid high global interest rates.
Data from the Bangko Sentral ng Pilipinas (BSP) showed the Philippines’ debt service burden on its external debt increased by 160% to $6.5 billion from $2.5 billion a year ago.
The debt service burden refers to the amount of money a country needs to pay back to its foreign creditors. It includes both the principal and interest payments on its external debt.
BSP data showed principal payments climbed by 164.3% to $3.7 billion from $1.4 billion a year ago.
Interest payments jumped by 145% to $2.7 billion in the first five months of the year from $1.1 billion a year earlier.
Principal external debt service is mostly fixed medium- to long-term credits, while interest payments are on fixed and revolving short-term credits of banks and nonbanks.
“Increased bond issuance by the National Government, which is part of the borrowing program, may have pushed up the principal payments to $3.7 billion,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.
He said the recent spike in global interest rates is the likely reason behind the 145% increase in interest payments.
Central banks across the world have tightened monetary policy to curb inflation.
“Higher external debt service burden may be attributed to higher prices/inflation that increased government expenditures, increased budget deficits and foreign borrowings,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said, adding that the weaker peso could also be a factor.
Headline inflation eased to 6.1% in May from 6.6% in April and brought the five-month average to 7.5%. May also marked the 14th straight month inflation breached the BSP’s 2-4% target.
Based on the latest central bank data, the Philippines’ outstanding external debt rose by 8.25% to $118.8 billion as of end-March from the $109.75-billion level a year earlier.
External debt refers to all types of borrowings by Philippine residents from nonresidents, following the residency criterion for international statistics.
The external debt as of end-March was equivalent to 29% of gross domestic product, higher than 27.5% from end-December and end-March 2022.
The debt service ratio also increased to 12.9% as of end-March from 4% a year ago. — KBT